The global linkages between the financial and commodity assets markets imply that the same class instruments, are traded at an same price to other related assets regardless of the geographical location of the exchange. If the “balance” is being violated, the difference is interpreted as an arbitrage opportunity to buy an asset “cheaply” on one exchange and sell “high” on another platform.
E-commerce and trading terminals “killed” arbitrage trade – price divergences are instantly destroyed by “arbitrage robot” using special algorithms to track the difference. Funds for buying or selling are automatically transferred from one account to another via instant deposit replenishment systems in various trading accounts of exchanges across the world.
• The exchange rate of gold on the LSE in London is exactly the same as precious metal quotes “overseas” on the CME exchange.
• Value and dynamics of changes of currency pairs in the Forex market coincide with all national exchanges.
It is not for nothing we have chosen the market of metals and currencies as an example, here we can also talk about energy carriers. These liquid instruments are the place where most of the participants’ funds are concentrated.
Arbitrage trading is possible in low-liquid assets, widely spread in world markets in different time zones and with different income of the local population, as well as a discrete system of withdrawal and replenishment of the deposit.
Cryptocurrency is included in the listed parameters:
• A market with a capitalization of half a trillion US dollars is presented on over hundreds of platforms
• The withdrawal and replenishment takes days or hours, with a few payment systems or they are absent (only cryptocurrency is traded)
A clear example of arbitrage trading is the situation in 2017 with the Golix crypto-exchange in Zimbabwe, which trades Bitcoin to the dollar twice as high as the average market rate. The difference was explained by the high demand for crypto currency in a country, where economy lies in ruins with simultaneous low liquidity due to poverty and the lack of openness of crypto trading.
When we checked this information, the daily volume on the platform did not exceed 100 Bitcoins, the dollars were rarely available and the gain on sale of cryptocurrency to a non-resident (Zimbabwean stateless person) could not be withdrawn with no explanation.
Three steps of crypto trading for arbitrage trading
At the heart of arbitrage crypto trading is the idea of risk-free earnings on cryptocurrency using simultaneous or sequential transactions for the purchase and sale of identical liquid digital assets.
Select tools for arbitrage trading. We propose to search for a difference in the rates of cryptocurrencies with high capitalization or intraday turnover: Bitcoin, Ethereum or USDT (the so-called crypto dollar). Buying an altcoin with low liquidity can turn into a trap: during the transfer of funds to another platform, the price may change dramatically due to the lack of sellers or the trader simply can not find the buyer for purchased volume.
Determine the way of arbitrage trading: simultaneous derivative deals or buying a cryptocurrency below the average market price and selling above this value.
Find suitable cryptocurrency exchanges, exchange offices and statistics sites to track profitable and suitable cryptocurrency rates.
• To track your crypto portfolio use the FinTab application.
• To track for the statistics of cryptocurrency rates in your wallets use the services we wrote about in our previous article.
• To exchange coins between crypto-exchanges Bittrex, Bitfinex, Poloniex, CEX.io and OKex will suit you
• The Kraken, Exmo and Yobit platforms work with USDT tokens and fiat dollars.